GST (Goods and Services Tax)

Biggest Tax Reform Since Independence…..

Swapnil W BorekarMBA ++

Department Of Management

Sci. (PUMBA)

GST‘G’ – Goods

‘S’ – Services

‘T’ – Tax

Goods and Service Tax (GST) is a comprehensive

tax levy on manufacture, sale and consumption

of goods and service at a national level.

GST is a tax on goods and services with value

addition at each stage.

GST will include many state and central level

indirect taxes

It overcomes drawback present tax system

Tax Structure in India

Direct Tax :

Incident and Impact at same point

e.g.: Income Tax, Corporate Tax, Wealth Tax

Indirect Tax :

Incident Impact are at different point.

e.g.: Excise duty, custom duty, Service Tax, Octrai Tax,

VAT, CENVAT.

Method Of Taxation

Progressive Tax :

Increasing rate of tax for Increasing Value or

Volume.

Regressive Tax :

Decreasing rate tax for Increasing Value or

Volume

Proportional Tax :

Fixed rate of tax for every level of income or

production

Short comings in current

Tax System

Tax Cascading (Tax on Tax)

Complexity

Taxation at Manufacturing Level

Exclusion of Services

Tax Evasion

Corruption

Cascading Effect of

Present Tax system

Reform In Tax System

VAT(Value Added Tax)

Implemented in April-1/2005

It is replacement to complex Sales Tax

It overcomes a Cascading Effect of Tax

It applied on “ Value Added Portion “ in sales

price

Illustration of VAT

• In the previous

example, ‘value

added’ by B is only

Rs.50 (150–100)

• tax on producer B

would be only Rs.5

(i.e., 10 % of Rs. 50)

while

• the tax paid in

previous system

was Rs. 15 (10 % of

Rs. 150).

• In Old Tax System Consumer has to pay Rs 220

• In VAT system Consumer Actually Paid Rs 205

Problems with VAT

A major problem with VAT is the way it taxes

inputs and outputs.

Input are taxed at 4 percent and outputs at 12.5 percent

Some goods are included in both CENVAT and

VAT

It is not uniform in nature

VAT is different for different States

number of exemptions for some sensitive

different rates of taxation for different goods

What is GST

GST is a comprehensive value added tax on goods and services

It is collected on value added at each stage of sale or purchase in the supply chain

No differentiation between Goods and Services as GST is levied at each stage in the supply chain

Seamless input tax credit throughout the supply chain

At all stages of production and distribution, taxes are a pass through and tax is borne by the final consumer

All sectors are taxed with very few exceptions / exemptions

History

Feb, 2006 : First time introduced concept of GST

and announced the date of its implementation in

2010

Jan. 2007: First GST study by ASSOCHAM released

by Dr. Shome

Feb. 2007: F.M. Announced introduction of GST

from 1 April 2010 in Budget

The Government came out with a First Discussion

Paper on GST in November, 2009

Introduced the 115th Constitution Amendment(GST) Bill in the year 2011.

Model Of GST

GST Structure

centre GST

GST to be levied by the

Centre

State GST

GST to be levied by the

Dual GST

GST to be levied by the Centre and the States concurrently

Proposed GST Rate

Items Total GST

rates (in %)

Centre State

Goods 20 12 8

Services 16 8 8

Essential

Goods

12 6 6

Presently it is (26.5 % , CENVAT-14 % and State VAT 12.5% )

Taxes proposed to be

subsumed in GST

Central Taxes Excise Duty

Additional Excise duty

Excise duty under medicinal and toilet preparation Act

Service Tax

Additional Custom duty commonly known as countervailing duty (CVD), special additional duty( SAD)

Surcharge

CENVAT

Taxes proposed to be

subsumed in GST

State Taxes

Value added tax (VAT)

Entertainment tax levied by states

Luxury Tax

Tax on Lottery, betting and gambling

Entry tax other than for local bodies (Octroi)

Product Excluded from

GST

Petroleum Product

Alcohol

Tobacco Product

Purchase Tax

Zero Rating For Exports

Illustration Of GSTProduct A VAT System GST System

Base Price 100 100

+ 12% Excise duty 12 NA

+12.5% VAT 14 NA

State GST NA 8

centre GST NA 12

Total Tax Burden 26 20

Value Of Product to Consumer 126 120

Benefits of GST

Transparent Tax System

Uniform Tax system Across India

Reduce Tax Evasion

Export will more competitive

Hurdles in Implementation

Dispute between centre and Tax over Tax Sharing

Highly sophisticated IT infrastructure required .

Issue of taxing financial services and e-commerce

is to be appropriately addressed and integrated.

Political Imbalace

GST Global Scenario

More than 140 countries have already introduced

GST/National VAT.

France was the first country to introduce GST system in 1954.

Typically it is a single rate system but two/three

rate systems are also prevalent. Canada and

Brazil alone have a dual VAT.

Standard GST rate in most countries ranges

between 15-20%.

Thank You